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Math Help - Find the Annual Rate

  1. #1
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    Find the Annual Rate

    Tracy is thinking about buying 100 shares of a stock selling for $15 per share. The stock pays no dividends. Her broker says that the stock will be worth $20 per share in 2 years. What is the annual rate of return on this investment?
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  2. #2
    Grand Panjandrum
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    Quote Originally Posted by magentarita View Post
    Tracy is thinking about buying 100 shares of a stock selling for $15 per share. The stock pays no dividends. Her broker says that the stock will be worth $20 per share in 2 years. What is the annual rate of return on this investment?
    Assume that you instead invest the money ($15000) at an annual rate r, then after 2 years this must be worth $20000 to be an equivalent investment, and r is the annual rate of return on the investment.

    RonL
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  3. #3
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    Can you..

    Can you break it down another way?
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  4. #4
    Grand Panjandrum
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    Quote Originally Posted by Air View Post
    She buy's 100 shares at $ 15 so in total she pays:

    100 \times $ 15 = $ 1500

    In 2 years, the value is $ 20 so in total, her share value is:

    100 \times $ 20 = $ 2000

    So, over two years, she has had a profit as the stocks are worth more than she paid so she has earnt:

    $ 2000 - $ 1500 = $ 500

    So, per annum ( 1 year) this would be:

    $ 500 \div 2 = ...
    An annual interest rate will result in compounding annualy so you will not earn the same interest in each year.

    RonL
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  5. #5
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    Thanks...

    Thank you so much. I got it now.
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